Monday, May 2, 2016

REX Shares is launching two new VIX
exchange-traded products on Tuesday in what is likely to be the most important
VIX ETP launch in several years. The REX
VolMAXX Long VIX Weekly Futures Strategy ETF (VMAX) is the long
volatility product, while the REX VolMAXX Inverse VIX Weekly Futures Strategy
ETF (VMIN) is the
short volatility sibling.

After a flurry
of innovation in the VIX ETP space from 2009 to 2011, new product offerings
have slowed to a trickle over the course of the past few years, with only the
mystifying AccuSharesVXUP and VXDN products making
it out of the gate last year in a highly-anticipated May 18th
launch that pivoted quickly from excitement to befuddlement, as investors were
overwhelmed by the complexities associated with the seemingly endless flow of regular
distributions, special distributions and corrective distributions.

VIX aficionados
know that 2015 was also notable in that it marked the launch by the CBOE of VIX
weekly futures on July 23rd and VIX
weekly options on October 8th. Both product launches were successful and it
was just a matter of time before the new VIX weekly futures provided the foundation
for a VIX ETP that was based on those futures. While details are sketchy regarding VMAX and
VMIN, they will be holding VIX weekly futures and will target a
weighted-average VIX futures maturity that is less than thirty days. These ETFs will be actively managed and it is
likely that they will not have a fixed target maturity. Theoretically, the target maturity could vary
anywhere from five days to 29 days, though given the holdings and the “max” and
“min” embedded in the ticker symbol, I would anticipate an aggressive target
maturity on the order of 7-14 calendar days.

Whatever the
target maturity, VMAX will be competing with VXX right from the
outset, while VMIN will find itself up against the likes of XIV. The competition trades approximately 100
million shares each day and is certainly vulnerable to new products that have a
higher beta and should more closely track the spot/cash VIX on a daily basis. Depending upon the target maturity of VMAX
and VMIN, I would not be surprised if these products have 50% more beta than
VXX and XIV. For this reason, I would be
shocked if, at the very minimum, VMAX and VMIN do not become darlings of the
day-trading crowd – a forecast not unlike the one I made on November 14, 2008
in Prediction:
Direxion Triple ETFs Will Revolutionize Day Trading.

REX Shares is launching two new VIX
exchange-traded products on Tuesday in what is likely to be the most important
VIX ETP launch in several years. The REX
VolMAXX Long VIX Weekly Futures Strategy ETF (VMAX) is the long
volatility product, while the REX VolMAXX Inverse VIX Weekly Futures Strategy
ETF (VMIN) is the
short volatility sibling.

After a flurry
of innovation in the VIX ETP space from 2009 to 2011, new product offerings
have slowed to a trickle over the course of the past few years, with only the
mystifying AccuSharesVXUP and VXDN products making
it out of the gate last year in a highly-anticipated May 18th
launch that pivoted quickly from excitement to befuddlement, as investors were
overwhelmed by the complexities associated with the seemingly endless flow of regular
distributions, special distributions and corrective distributions.

VIX aficionados
know that 2015 was also notable in that it marked the launch by the CBOE of VIX
weekly futures on July 23rd and VIX
weekly options on October 8th. Both product launches were successful and it
was just a matter of time before the new VIX weekly futures provided the foundation
for a VIX ETP that was based on those futures. While details are sketchy regarding VMAX and
VMIN, they will be holding VIX weekly futures and will target a
weighted-average VIX futures maturity that is less than thirty days. These ETFs will be actively managed and it is
likely that they will not have a fixed target maturity. Theoretically, the target maturity could vary
anywhere from five days to 29 days, though given the holdings and the “max” and
“min” embedded in the ticker symbol, I would anticipate an aggressive target
maturity on the order of 7-14 calendar days.

Whatever the
target maturity, VMAX will be competing with VXX right from the
outset, while VMIN will find itself up against the likes of XIV. The competition trades approximately 100
million shares each day and is certainly vulnerable to new products that have a
higher beta and should more closely track the spot/cash VIX on a daily basis. Depending upon the target maturity of VMAX
and VMIN, I would not be surprised if these products have 50% more beta than
VXX and XIV. For this reason, I would be
shocked if, at the very minimum, VMAX and VMIN do not become darlings of the
day-trading crowd – a forecast not unlike the one I made on November 14, 2008
in Prediction:
Direxion Triple ETFs Will Revolutionize Day Trading.

Purpose of this Blog

The intent of this blog is to educate, inform and entertain readers, while also serving as an archived learning laboratory of sorts as I try to sharpen my thinking in areas such as volatility, market sentiment, and technical analysis. I also enjoy charging off on tangents and hope that readers may find some illumination or at least amusement in these forays.

Reviews of VIX and More

About Me

Chief Investment Officer at Luby Asset Management LLC in Tiburon, California. Previously worked as a full-time trader/investor and also a business strategy consultant. Education includes a BA from Stanford and an MBA from Carnegie Mellon.
Useless trivia: I once broke the world pogo stick jumping record without knowing it.